Subprime Hybrid Mortgages

Hybrid Mortgage Fundamentals

Hybrid mortgages are designed to offer maximum flexibility for borrowers who plan to refinance once their credit has improved. These loans typically offer rates that are 1.5% lower than conventional loans for the initial two or three years, depending on the specific terms of your mortgage. Following this initial period, the rate becomes adjustable and fluctuates based on market indexes.

Lenders often impose a prepayment penalty if the mortgage is paid off before the end of the initial term. However, as most borrowers use this time to rebuild their credit, this fee is generally not a major concern. In some cases, you may be able to waive the prepayment fee by paying a point at the loan's settlement.

Additionally, hybrid mortgages generally allow for higher borrowing amounts compared to fixed-rate mortgages, due to lower initial monthly payments. Increasing your down payment can further reduce your rate or enhance your borrowing capacity.

Finding Hybrid Mortgage Lenders

Both conventional and subprime lenders offer hybrid mortgages, with varying rates, fees, and terms. To secure the best financing package, it is advisable to request quotes from multiple lenders before making a decision.

Online financing companies often provide fee waivers or reductions, making them worth considering. You can also obtain quotes from traditional lenders through their websites. Online mortgage brokers simplify the comparison process by presenting multiple quotes side-by-side.

Refinancing Considerations

Once you have held your hybrid mortgage for at least two years, begin exploring refinancing options. If you anticipate moving within the next seven years, an adjustable-rate mortgage may offer the lowest rate. Conversely, if you plan to remain in your home long-term, a fixed-rate mortgage could provide stability with a low rate over the life of the loan.

As with any mortgage, comparing lenders and finance packages is essential to finding the best deal.